2022 (5) TMI 1672 - AT - Income Tax

Reopening of assessment u/s 147 - disallowance of expenditure inadmissible u/s. 37(1) related to illegal mining - HELD THAT - CIT (A) while quashing the reopening of assessment has given a categorical finding that the AO has accepted information from outside source without subjecting it to critical scrutiny and that the AO s reason to believe that income had escaped assessment was not based on an independent application of mind to the facts available. The revenue admittedly has not been able to dislodge any of the categorical findings of the ld. CIT(A). This being so we find no error in the order of the ld. CIT (A) in quashing the reopening of assessment. Consequently Ground No. 1 of revenue stands dismissed. Illegal mining and disallowance of expenditure u/s. 37(1) - CIT(A) held that the disallowance u/s. 37 would only come into play if the assessee had been penalized under the appropriate sections of the respective statute and if the assessee has claimed this penalty as an expenses in the profit and loss account. CIT (A) further goes on to hold that the payments made by the assessee to various parties represent genuine business expenditure for mining activities carried out by these parties like raising of iron ore and transportation of the same - they are neither in the nature of bribes/protection money nor do they suffer from the taint of illegality as no statutory law has been violated by the assessee in the course of incurring this expenditure. As the revenue has not been able to dislodge the findings of fact arrived at by the ld. CIT(A) we find no error in the findings of the ld. CIT(A). Penalty u/s. 271(1)(c) - As the appeals filed by the revenue in quantum appeals have been dismissed above the appeals against the deletion of penalty u/s. 271(1)(c) by the CIT (A) does not have any legs to stand.

2025 (3) TMI 878 - HC

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the proceedings under Section 147 of the Income Tax Act for reopening the assessment were validly initiated.
Whether the assessee was involved in illegal mining activities, and if so, whether the disallowance of expenditure under Section 37(1) of the Income Tax Act was justified.
Whether the deletion of penalties under Section 271(1)(c) was appropriate following the dismissal of quantum appeals.
Whether the cross-objections filed by the assessee against the revenue's appeals were valid, particularly concerning the procedural requirements laid out in the GKN Driveshafts India Ltd case.
Whether the delay in filing cross-objections by the assessee should be condoned.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Reopening of Assessment under Section 147

Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act allows for the reopening of an assessment if the Assessing Officer (AO) has reason to believe that income has escaped assessment. The requirement is that the AO must have tangible material to form such a belief.
Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) had correctly quashed the reopening of assessment. The CIT(A) noted that the AO's decision was based solely on the Justice M.B. Shah Commission's report without independent verification or application of mind. The Supreme Court's decision in Goa Foundation vs Union of India was also referenced, which criticized the Commission's findings for lack of opportunity for affected parties to respond.
Key Evidence and Findings: The AO did not reconcile the production data from the assessee's reports with the Commission's findings. The CIT(A) found no independent application of mind by the AO.
Application of Law to Facts: The Tribunal agreed with the CIT(A) that the AO's reliance on external reports without critical scrutiny rendered the reopening invalid.
Conclusions: The Tribunal upheld the CIT(A)'s decision to quash the reopening of the assessment, dismissing Ground No. 1 of the revenue's appeal.

2. Allegations of Illegal Mining and Disallowance of Expenditure under Section 37(1)

Relevant Legal Framework and Precedents: Section 37(1) disallows expenditures not incurred for business purposes or those that are illegal.
Court's Interpretation and Reasoning: The CIT(A) found no evidence of suppressed production or illegal mining. The figures provided by the assessee matched those in official reports.
Key Evidence and Findings: The CIT(A) verified the production figures with the Indian Bureau of Mines and the Central Empowered Committee, finding consistency in the data.
Application of Law to Facts: The CIT(A) concluded that the expenses were genuine business expenditures and not illegal, as no statutory law was violated.
Conclusions: The Tribunal confirmed the CIT(A)'s findings, dismissing Ground Nos. 2 and 3 of the revenue's appeal.

3. Deletion of Penalties under Section 271(1)(c)

Relevant Legal Framework and Precedents: Section 271(1)(c) provides for penalties on concealment of income or furnishing inaccurate particulars.
Court's Interpretation and Reasoning: With the dismissal of the quantum appeals, the basis for penalties was nullified.
Conclusions: The Tribunal dismissed the revenue's appeals against the deletion of penalties.

4. Cross-Objections by the Assessee

Relevant Legal Framework and Precedents: The procedural requirements for reopening assessments as laid out in GKN Driveshafts India Ltd vs DCIT.
Court's Interpretation and Reasoning: The Tribunal found that the AO had communicated the reasons for reopening to the assessee, and the assessee did not object to these reasons.
Conclusions: The Tribunal dismissed the cross-objections, finding no procedural lapses by the AO.

5. Delay in Filing Cross-Objections

Relevant Legal Framework and Precedents: The Tribunal's discretion in condoning delays based on reasonable cause.
Court's Interpretation and Reasoning: The reasons provided by the assessee for the delay were not found convincing.
Conclusions: The Tribunal did not condone the delay, leading to the dismissal of the cross-objections on this ground as well.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes: The Tribunal emphasized that "adjournment is not a right but a liberty granted by the Bench" and criticized the frequent adjournment requests as an "abuse of that liberty."
Core Principles Established: The necessity for independent application of mind by the AO when reopening assessments and the importance of tangible material in forming a "reason to believe."
Final Determinations on Each Issue: The Tribunal dismissed all appeals by the revenue and the cross-objections by the assessee, upholding the CIT(A)'s decisions across the board.